A Fruitless $80 Billion Investment for Taxpayers

A recently released report by the Government Accountability Office (GAO) is not a reassuring sight for taxpayers who are looking for reparations for their $80 billion investment in the auto industry. One major problem highlighted in the report is that the Treasury has conflicting interests due to its significant stake in the automakers. To make matters worse, the GAO raised concerns that the Treasury does not have the necessary expertise to navigate these complicated trade-offs:

“Because of the particular needs of the auto companies and the unprecedented nature of providing such assistance, Treasury hired or contracted with a number of individuals with expertise in the auto industry, equity investment, and relevant areas of law...Since those agreements have been finalized and the workload has declined, two-thirds of the original professional staff has left...given the wind-down of the auto team—and the associated loss of dedicated staff with industry- and company-specific knowledge and expertise—we are concerned that the Treasury may not have sufficient expertise to actively oversee and protect the government's ownership interests, including determining when and how to divest these interests.”

As the report points out, the Treasury has a few options for divesting the government's interests in the automakers, including public sales and private negotiated sales. But no matter what the Treasury decides to do, the GAO predicts that taxpayers will end up on the losing end:

“Regardless of the sales strategies used, the companies will have to grow substantially in order to reach values at which the Treasury would recover the entirety of its equity investment upon sale of its equity, which the Treasury and others consider to be unlikely.”

I believe that the Treasury needs to find a way to sufficiently explain to Congress and taxpayers how and why a decision was made to sell off the government’s interests. However, I can see this being a significant challenge for an agency that has been less than forthright in explaining the strategy behind its other bailout programs.

http://www.gao.gov/new.items/d10151.pdf

Morgan Duff

MPG, EPA and SUV

New EPA data released yesterday demonstrates how a recession can affect buying habits of consumers and overall mileage ratings. Also, the Obama administration has been working on increasing average MPG numbers for years to come.

New 2009 models have been reported to be 7% more efficient than the vehicles sold in 2008, on average. It has been reported to be the largest increase in average fuel efficiently in the last three decades. All major automakers had increased their average fuel efficiency of their model lineup, except for Chrysler which sold more SUVs and pickups in 2009 than smaller cars. Automakers with the highest increase in mileage numbers include Japanese companies like Toyota and Nissan.

On average 2009 cars and trucks are lighter too, with average car weight decreasing by 4% and truck weight shedding an average of 100 pounds.

At the same time, the White House is making plans for sweeping new standards starting in 2017. They currently have in place a goal of 35.5 mpg (on average) for 2016. However, many wonder if these numbers would have looked so good to environmentalist if there wasn’t a recession. Projections for 2010 show no real improvement as gas prices are going down, the economy is recovering and people feel more comfortable buying bigger cars.

What I find surprising, and somewhat baffling, is why these numbers are such improved. Most people who know anything about the industry realize it takes many years to totally revamp a model lineup. Essentially making most of the models available for 2008 the same that were in the showroom in 2009. Clearly these numbers are driven by what kinds of vehicles are popular in a given year. High fuel prices and an uncertain economy made 2009 the year people bought small but it doesn’t seem this trend will continue.

I really don’t believe in fuel economy standards and I think they blind automakers to doing what they really need to do—improve the overall automobile. As the last few years have shown, gas prices are the biggest driving force in more fuel efficient cars sales. It is at these times when consumers demand better mileage ratings and new fuel technologies. If automakers must follow government guidelines, showrooms will be full of small cars no one wants just to keep average mileage numbers down to satsidy government standards. The result is freakish products like the Aston Martin Cygnet which is designed to balance out averages with Aston Martin’s gas-guzzling super cars. Simply put, if government really wants to get more fuel efficient cars on the road, they should increase gas prices through taxation. It would be effective but not welcomed by anyone.



http://www.nytimes.com/2010/11/18/business/energy-environment/18fuel.html?src=busln

GM IPO: It's Kind of a Big Deal

On Wednesday (the 17th), GM announced its IPO, priced at $33 a share, a bit higher than expected. It will turn the US government into a minority shareholder (as opposed to holding 61%), paying back billions of dollars to American taxpayers. Here's a rundown of the IPO from the WSJ:

After the market closed Wednesday, Wall Street underwriters set the price on 478 million common shares, with another 71.7 million expected to be sold if bankers exercise an overallotment option known as the green shoe.

The underwriters also boosted the size of a planned preferred stock offering to $4.4 billion, which could also be increased in the green shoe by another $650 million. If the decision is made in the next few days to exercise both overallotments, the deal could raise a total of $23.1 billion.

The deal grew in size over the past few weeks, driven by better-than-expected demand from U.S. mutual funds, according one person familiar with the deal.

Proceeds from the sale largely will go to the U.S. government, which owns 61% of GM after restructuring the car maker last year in bankruptcy court.

The auto maker has returned $9.5 billion of the $49.5 billion the U.S. spent to rescue GM last year. The Obama administration will seek to recoup the rest through the sale of stock over the next couple of years.

Dennis Berman and Simon Constable discuss how GM's underwriters achieved a high opening price for GM's IPO, an effort that will help to return billions of dollars of taxpayer bailout money to the U.S. Treasury.

The U.S. Treasury, which has kept close tabs GM's operations since bailing out the auto maker last year, will reduce its oversight role after initial public offering on Thursday, people familiar with the matter said.

This is great news for everyone involved in my view. After the IPO, the US taxpayers will have about 2/5ths of their bailout money repayed. GM will have an infusion of capital, in conjunction with the federal government's role in oversight reduced.

How about the investors? What does GM going public again mean for them?

James B Stewart, writing for Smart Money, has this to day:

Along with other automakers, GM should benefit from cyclical trends in its favor. After the recent financial crisis and severe recession, there’s tremendous pent-up demand. An improving economy, higher employment and rising consumer confidence should translate into solid growth in North America, and GM should fare even better in emerging markets (in which it has the largest market share).

So let’s concede this is a good time to be buying auto company shares, and that GM in particular seems an attractive candidate for further market share gains. How do the numbers look?

Price-to-earnings math gets tricky, because quarterly earnings have been erratic for car makers over the past year. If we assume the most recent quarter is representative of quarters to come, GM trades at 5.1 times earnings compared with 8.5 for Ford at 8.5, 26.8 for Toyota and 10.2 for Honda. In other words, GM still looks cheap.

This may in part reflect the political and business reality that this is an initial public offering that can’t afford to flop. A successful offering is essential to GM’s campaign to shed its old stodgy, loser image and shed the taint of government ownership. And the government (which doesn’t seem to be meddling in day-to-day management but remains the largest shareholder) needs a successful offering to enhance its prospects of recouping the massive taxpayer investment.

Of course there are risks, as in all IPOs. There’s a list of them in the GM registration statement. While I’m encouraged by GM’s progress, I believe it still has a long way to go before it achieves its vision of building the world’s best cars. Based on my last visit to the auto show, I’d say its new product line up doesn’t yet match Ford’s. But it has plenty of new vehicles in the pipeline, including the much-anticipated Volt.

So my advice is, call your broker and ask if you can get some shares. (Thirty-five underwriters are participating in the offering.) I intend to. Demand seems to be running high, and if my analysis is any indication, it’s no wonder: Within the stated offering range, GM shares are a great deal.

Another writer for Smart Money, Alyssa Abkowitz, adds more to the case for buying GM:

Does GM really deserve the flashy IPO parade? On paper, the reengineered automaker boasts a phenomenal balance sheet, with strong cash flow, and a conservative price-to-earnings valuation, even after the pre-IPO bump. In the third quarter, the company posted earnings of $2 billion on sales of $34 billion – its biggest profit in more than a decade. Analysts note that better pricing has helped the company’s profits; the new Buick LaCrosse, for example, sells for about $7,800 more per unit compared to last year. “Simply put, GM makes products that consumers are willing to pay more for than they once did,” notes David Whiston, an auto analyst at Morningstar. GM also has a strong presence in China and other emerging markets where auto demand is growing. That’s one reason, says Schuster, that “there’s good reason to believe the company will outperform.”

If results from its primary rival, Ford (F: 16.68, +0.17, +1.02%), are any indication, GM’s shares could thrive. Ford is on track to post its first consecutive annual profit increases since 1993 – all while being celebrated in the media for avoiding bankruptcy and a bailout. “Ford is trading really well,” says Matt Therian, an analyst at IPO research firm Renaissance Capital; its shares are up by 60% since mid-summer. But by some measures, GM is actually performing better than Ford: in the third quarter, for example, Ford earned about $2,700 in profits per vehicle it sold in North America, while GM earned around $3,000 for each vehicle.

Of course, there are still plenty of reasons for investors to be skeptical. For one, GM’s common stock investors won’t see dividends for a long time. That’s because the government has to get more of its $49 billion investment back from GM before any penny goes elsewhere. While the company has crept into the black, its sales are still far below their pre-wipeout peaks. There’s also the question of how long the “Government Motors” stigma will hang over the company and whether the auto giant’s financial restructuring has addressed all its issues, including its continuing obligations to retirees. “Investors will remember the problems of the old GM,” Therian says, and that could weigh down the stock price.

It seems to me that the benefits outway the costs. Anyone who wants to invest in the auto industry MUST give GM a long look. Auto sales are starting to rebound, so now is a great time to buy.

For more on auto industry investing, here's a great piece by Jonathan Hoenig:

http://www.smartmoney.com/investing/stocks/fords-a-great-story-but-hondas-the-better-stock/

GM's Initial Public Offering

GM has declared it will price its IPO( Initial Public Offering) at $33 dollars a share, in what could be one of the largest U.S. stock offerings in history. The Price of $33 reflects a better-than-expected demand for GM shares. The deal could generate a total of $23.1 billion, with much of the proceeds going to the U.S Government, which currently owns 61% of GM.

The high profile GM's deal comes after solid months of increased profits by the company. The IPO will not only bring money to GM, but it will also reduce government's influence in the company, as the treasury department is expected to sell 412 million of its shares, raising $13 billion.

The event, in my opinion, is mostly positive. The Government will gain more than previously expected, helping for the repay of the 49 billion spent in GM's bailout. GM will be more autonomous as the government begins to sell its share of the company, and investor will fell more confident to invest in GM.

Right Management, who cares?

Who is to blame for the downfall of GM. When the economic crisis hit our country, we were left with a medley of issues to contend with. There was the housing bubble that popped, the insurance companies that needed bailing out and most importantly, the American auto companies, which were struggling to stay afloat. Should we blame management in this case or should we blame the economy?

According to the Wall Street Journal, it is management's fault to blame. This is especially the case for the head C.E.O at General Motors Company Holman Jenkins. Holman Jenkins' track record at the GM company was not as exemplary as he would have wanted it. It's even more embarrassing for Holman Jenkins since George W. Bush blames Holman Jenkins for a "decade of poor management" (wallstreetjournal.com). The tirade continues in the paper as he is berated for the drop in stock value. Although most C.E.O.'s would take the heat and generously accept any insults thrown their way, Jenkins goes ahead to dispel any bad word about him. He even goes to say that the numeric decrease in value of stock is not a valid measurement of a company's C.E.O's capability. It's believed that he is responsible for the downtrodden state of GM, and by the way he is dealing with the many criticisms, I can't believe anything but that fact. Generally, C.E.O.'s deal with criticism respectfully, declining to comment on the issue of their company. It all seems too defensive coming from a champion of capitalism.

There are too many issues to contend with when talking about G.M. Its C.E.O. being one major aspect. However, even as the C.E.O. is being berated by the media and criticized by his own words, it is hard for me to deny the fact that G.M. is doing better this quarter than the last. This quarter's performance although not as golden as the peak performance of 2007, shows that the C.E.O. is contributing his part into the company. I am to believe that he is not great at communicating with the media, but I believe that he is taking the company in the right direction and step by step rebuilding it to its former grandeur.

http://proquest.umi.com/pqdweb?index=2&did=2186586941&SrchMode=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289934516&clientId=31806

Mr. Goodwrench Gone

Starting in February, the Goodwrench brand will be phased out by General Motors. The Goodwrench brand, also known as Mr. Goodwrench, is GM’s service sector image which was first used in 1974. The Goodwrench name can be found on dealership lots and signs throughout the country.

It was once thought to be a symbol of quality parts and service but GM now believes its image is too closely connected to the General and not connected enough to the core brands.

With fewer brands to manage, GM is hoping to individualize the service experience by having separate service brands for each of the remaining GM manicures.

I am not surprised by this move at all. GM does not want their logo or name near any of their products at this point. Consumers no longer see the GM brand as a sign of quality like they did when Mr. Goodwrench was first introduced. This follows a trend of differenciating and distancing the GM name from brands like Cadillac and GMC which are more respected. Several years ago, GM used to put a small badge on every car, no matter the brand, displaying the squared-off General Motors logo. They have gotten rid of these too now.

I support this move. With fewer brands to manage GM doesn’t need huge umbrella like dealerships or programs to service all products. Cadillac, Buick, Chevrolet and GMC can have their own programs and, more importantly, can distance their products from the GM name.


http://money.cnn.com/2010/11/09/autos/gm_goodwrench/index.htm

Used Cars Trending Upwards

With many customers still having trouble getting loans for new cars, lower-priced used cars are increasingly popular. For dealers, that means used-car revenue is up. And, in many cases, so are profits.

CarMax Inc., the nation’s largest seller of used cars with 103 superstores, said it’s hiring for 1,200 store positions across the country. While part of that is for seasonal staffing, it’s also part of a broader expansion. The news comes days after AutoNation, the largest seller of new cars with 251 new vehicle franchises, said it’s moving more aggressively into the used car business. AutoNation has opened 16 Value Vehicle outlets, and six more are expected to open by next spring. These stores stock reconditioned used cars that it previously would have sold at auctions.

AutoNation’s recent third-quarter results show why: Used car revenue this year is up 26%. For new cars, sales are up a comparable 18%. Take a look at the latest quarterly profit comparisons, too: CarMax reported a gross profit per used car of $2,205 this year, while AutoNation reported a gross profit per new vehicle of only $1,994.

I believe new car manufacturers should definitely take note: The business case for used cars is looking more attractive to customers and dealers these days. Overall, this can be a positive and a negative for the automotive industry and might influence manufacturers to consider selling many of their vehicles to large business for fleet use as they will be worth more when sold as used later on down the road.


Morgan Duff

http://www.freep.com/article/20101103/BLOG40/101103033/1210/BUSINESS01/Automakers-beware-Used-cars-are-showing-their-value

Tata Motors' Nano isn't Very Safe

The car industry is one of the more globalized industries. GM and Toyota, among others, build cars on every continent (minus Antarctica, obviously). Automakers are always trying to gain the upper hand in the Chinese market, which is basically the biggest market for car sales since the U.S. has slowed its appetite for autos because of the recession.

India, you would think, might be pretty big too, since it is the second most populous nation on earth. However, you would be wrong. Unlike China, there aren't a whole lot of middle-class or upper-class citizens and poverty is widespread. So while a Buick might sell well in Beijing, this is not the case in India.

India's own Tata Motors began selling the Nano throughout its domestic market in March of 2009. Now, they are having safety issues:

Tata Motors Ltd. (TTM), maker of the Nano, said Wednesday it will offer buyers of the world's cheapest car additional safety equipment free of cost and clarified it won't recall any of the units.

The Press Trust of India earlier in the day reported that the company, India's largest auto maker by sales, will recall some units of the minicar to add safety features, citing Tata Motors' managing director for India operations, P. M. Telang.

"We have decided to make the car even more robust. We will do this by providing additional protection in the exhaust system and the electrical system," the auto maker said.

"These actions don't constitute a recall."

Some customers in India have reported incidences of the minicar catching fire. But after investigating in May, Tata Motors said that there aren't any manufacturing defects and that such episodes have been because of the installation of additional electrical equipment or due to some material on the exhaust system.

Why does this matter?

This incident illustrates are very important fact about the world auto industry. Standard in Western Europe, North American, and Australia are much more strict than those in China, India, Russia, and Africa. This poses a very serious challenge for auto makers as they attempt to expand their global reach. For companies used to strict safety standards, they must adapt their vehicles to sell in poorer markets. Safety features are expensive, so U.S. and European automakers must adapt to compete in poorer parts of the world were safety isn't a big concern.

Automakers in less-developed countries must spend a lot of money on safety feature research to compete in areas with stricter controls.

Other than the quote from the article, this has been my opinion based on what I have read and learned about the auto industry throughout the world.

Obsessed? So is America. But where's our customer service??

It is commonly known that people and automobiles eventually become attached to each other. The purchased car begins to grow on the owner and it is inevitable that the owner has sentimental feelings for a piece of metal and plastic. However, is it that strange? Like our homes, cars are expensive. Cars are chosen with great thought before a decision is made because owners realize that much like a home, the majority of their income will be devoted to payments for the car. It is not always the case that owners make the smartest decisions as to which car they choose. This inconsistency is further supported by the hundreds of jobs available for car reposessers in Washington, DC alone (http://www.careerjet.com/repo-jobs.html). Nevertheless, the saying "home sweet home" has a strong correlation in terms of the veneration and importance that a car means to its owner. Some call it love while others call it insanity, but the incredible amount of devotion owners invest into their cars supports the statement that America is a nation of car enthusiasts. After all in 2007, there were over 254.4 million registered vehicles in the U.S., according to a depart of transportaion study. Considering there are currently an estimated 310,673,613 million people in America, that means over 50% of the United States population owns vehicles and that is just 60 million shy of the population (http://www.census.gov/main/www/popclock.html).

While reading the Wall Street Journal, I came upon a question and answer section regarding car problems that an ordinary person might have. Problems consisted of a dying battery, the decision to purchase a new car for a new baby and advice as to whether the owner should dump his beloved Jaguar. These are normal problems, at least in America, but the logic to the solutions some of these owners created were anything but conventional. The owner with battery problems reasoned, " I just unscrew the dial to disconnect the battery at night and it no longer discharges" (Welsh, "Cars: Me & My Car"). The owner had figured out that if he disconnected his 12 volt battery during the night, the battery would not end up being "dead" in the morning. The solution was certainly creative, and I was more than impressed by the ingenuity. Nonetheless, I am left wondering what I would have personally done in that situation. Would I have risked every night opening my car hood and then delicately proceed to disconnect the wires from the battery with the knowledge that one slip up could send my whole entire to body into electrical shock? Probably not. Americans have for decades been inventing novel methods to sustain the life of their beloved automobile. I remember watching the movie Matilda where the father proceeded to circulate saw dust through the engine manifold to reduce the amount of miles on the odometer. Media and exposure to cars then produces this perception and almost reality that everywhere an American turns their head, there is a conversation or commercial about cars. It is almost seems compulsory to our behavior and adds to the notion that Americans are not only defined by an inherent desire to gourge their faces with food and develop diabetes, but also incorporate cars and the automobile into their daily lives. The final question in the article for the Q&A was whether an owner should dump his Jaguar for a new vehicle. This particular owner purchased his Jaguar in '98 and the odometer reads over 160,000 (Welsh, "Cars: Me & My Car"). Most cars usually require an increasing amount of attention and service after 100,000 miles, but the owner in question here has kept his vehicle for over a decade and has outrageously surpassed the 100,000 mile life span of a car. Now, you might be wondering why this is such an important topic and that is because every car that my family has owned no matter how well it is taken car of has not lasted more than 120,000 miles. The figures clearly indicate this owner is taking great care of vehicle and may even be obsessed. However, be it obsession or love, the important fact about both cases of owners is the attention auto makers in the U.S. should heed to this trend. As a prospective car buyer, besides speed, technological innovations and safety features, I would like to know whether the car company cares about me, the owner. Our capitalistic society dictates the companies care more about profit than people, but I would rather purchase a vehicle that has been desgined for the car buyers in mind. This leads to the greatest and personally what I think of as the most important facet of car companies, customer service. No matter how much auto makers innovate and update their factories to reduce the number of employees that work their, the increasing number of machines and computers that take over the work force directly correlates to the increasing number of customers the company inevitably garners from sales. It is a contradictory relation since auto makers are trying to reduce the human factor in their factories to stream line operation while increasing their customer base. So I am finally left with one thought and that is since factories are bringing about the extinction of car factory workers, shouldn't they begin focusing on customer satisfaction and service more than developing a new seat to reduce back strain? Tell me what you think.

http://proquest.umi.com/pqdweb?index=1&did=2175009941&SrchMode=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1289403375&clientId=31806
http://www.careerjet.com/repo-jobs.html
http://www.census.gov/main/www/popclock.html

Interesting Video

Germany Does Well In China

BMW announced surprising third-quarter profits which has been attributed to strong sales in China. In fact, all German luxury brands are doing well in the country. Audi seems to be first and attracts the older, government official crowd while BMW is capturing the hearts of young people in the country.

BMW, Audi and Mercedes-Benz have been heavily investing in the Chinese market. To avoid import taxes, the have built their own factories within the country. The three have also designed specific models for the Chinese market. Apparently, Chinese businesspeople like to be chauffeured around and have been demanding cars with more legroom in the back. Special versions of cars like the 5 series and E class have been lengthened for more room in the back. These only-to-China models look slightly odd with their rear doors considerably longer than the forward doors. This type of lengthening is known as “long wheelbase” within the industry.

However, the German luxury giants have a long way to go to win the Chinese market. So far this year BMW sold 102,916 units in China but sold 176,736 units in the US. Don’t forget that the US is still in bad economic times and has a lot more luxury options than in the Chinese market. While sales in China are not bad for these luxury cars, I don’t think they should be an indicator in the Chinese market. I would place my bet on mainstream cars selling the best in China. China’s wealthy may be buying a few 5 series but the real money is to be made with the growing middle class. The people who are moving up from a motorbike or even a bicycle to a car are the consumers guiding the industry.


http://blogs.wsj.com/scene/2010/11/03/bmw-in-china-its-paid-in-full-in-cash/

http://www.bloomberg.com/news/2010-11-03/toyota-s-lexus-widens-u-s-luxury-sales-lead-over-mercedes-bmw.html

GM (Government Motors)

Since the company's bailout in 2008, GM has quietly been referred to as "Government Motors". However comical, this nickname actually has serious implications regarding not only how GM has operated for the past two years, but also how GM will be taken public with an Initial Public Offering taking place on November 17. One of the most controversial aspects is the ability of sovereign wealth funds, like in the Middle East and China, to purchase extensive holdings in GM. The Obama administration and its financial advisers understand the political sensitivity of the situation, but in the end decided to allow access to large foreign investors.

However, I believe it may not be so much the question of whether foreign wealth funds should have the ability to buy GM stock, but whether these entities should be given what could be large and immediate profits when U.S. citizens, those who theoretically provided the billions in taxes to keep GM afloat, will not enjoy such access.

This sensitive situation involving one of our nation's oldest and most iconic companies further illustrates the importance of the midterm elections that have just finished up. With a conservative and economically concerned congress, the likelihood of gridlock between Obama's plans and theirs is certainly increased. Who knows what lies in the fate of one of our nation's icons.

Morgan Duff
http://www.reuters.com/article/idUSTRE6A04RG20101101?pageNumber=1

Two Big GM Stories

This week I stumbled on two big stories about GM. First, GM has decided for sure how many dealers to keep. At one point they were gutting much of their dealer network, but they have now settled on 4,500 dealers. From Fox Business:

General Motors will move forward with 4,500 dealers after the automaker, under pressure from Congress angry with j

ob losses, reversed planned closures of more than 800 franchises, the company said Monday.

GM finalized dealership closures and franchise reinstatements over the weekend, one of the final pieces of business to be checked off before beginning its presentation to investors this week on its proposed share sale.

The public offering is designed to return GM to public markets and shake off the government's controlling ownership.

The U.S. Treasury obtained a nearly 61% stake in GM in return for $50 billion in taxpayer Bailout and bankruptcy financing in 2009.

The automaker said it intended to stick with the decision to terminate 1,233 dealerships as of Sunday following months of arbitration and despite continued pressure from lawmakers, including an Ohio delegation that includes House Republican Leader John Boehner, to keep more small businesses open in a struggling economy.

I think that, while it is good for GM to be saving jobs, this move is financially bad for them long-term. No company should be pressured by Congress on how to act, except in instances with already existing regulations. This is one of the big pitfalls of the governments 61% stake in GM. Un-American things start to happen.

However, GM will look good for saving jobs, yet I expect them to further shave down the dealer network once they are free of the federal government's coercive control.

As the Fox Business piece mentions, GM is going to be issuing an IPO very soon. Here's a story from the WSJ:

The U.S. will cut its ownership stake in General Motors Co. below the symbolically important 50% to about 35% when the car maker relists its stock later this month, according to new figures the company plans to disclose Tuesday, but it will be tough for the government to break even on its investment.

Neal Boudette discusses GM's IPO plans, which will raise up to $10 billion and cut the government's stake to below 50%.

The new projections by GM say the company could have a stock-market value at the start of trading of $50 billion—about the same as the solidly profitable Ford Motor Co.—and that it could be as high as $60 billion, said people familiar with the plan.

But for the U.S. to break even through sales of the rest of its stake, the share price may need to rise more than 60% from its initial level, to about $50.

The initial public offering plan envisions the shares would be priced at $26 to $29 each, these people said. The actual price of the stock to be sold in the IPO would be set about Nov. 17, and the sale would take place the following day.

Through the IPO, GM plans to sell 24% of its total shares, or about $10 billion worth, based on the midrange of the share-price estimate.

Ultimately, this IPO will be very good for all parties, in my opinion, because it will pay back the government and will loosen the government's grasp on GM. GM will also be a great investment because they are still in the top three globally for car sales, but now they have much less debt and dead weight since going through bankruptcy. Moving forward, GM is a company to keep a close eye on. Lots of great new products will be coming out soon, so I expect sales, profits, and the stock price to increase in the near future.